Realities of war sink in for Web stocks

Internet group turns lower after last week's run-up

BambiFrancisco

SAN FRANCISCO (CBS.MW) -- The longer war goes on, the more the realities sink in.

Internet shares fell across the board Monday as hopes for a quick resolution of the war in Iraq were dashed after the weekend's developments.

Last week, investors bid leading Internet names to 52-week highs as investors saw the group as safe-haven stocks -- businesses that would continue to grow as a result of increased traffic to the Web for information and news, or for shopping needs.

But it's unclear to what extent a prolonged war would affect consumer spending. And, with Internet stocks seemingly priced for perfection -- Amazon.com, for one, is trading at roughly 169 times this year's taxable adjusted earnings estimate -- investors decided against bidding the sector to new heights.

Bye bye, 52-week highs

Amazon.com
AMZN, -1.70%
which closed at a 52-week high of $27.86 on Friday, fell 4 percent to $26.95 in recent dealings.

EBay
EBAY, -0.87%
lost 2 percent to $88.40 after hitting a 52-week apex of $89.79 on Friday.

Yahoo
YHOO
fell 4 percent to $22.97, after it climbed to $23.98, also 52-week high, in the prior session.

Search company FindWhat.com
FWHT
gave up 5 percent to $9.53, pulling back from a 52-week closing high of $10 on Friday.

Strategists have warned that while high-beta Net stocks tend to outperform if the market goes up, they also fare worse when the market goes down. Perceptions that these particular stocks are relatively expensive will, some analysts believe, weigh on investor psyche when the market's mood shifts to negative.

Trailing Amazon.com in terms of P/E ratios, Yahoo trades at 80 times this year's estimate earnings, followed by EBay at 68 times and Expedia at 46 times.

"When you think of a successful conclusion of the quick war without a tumultuous aftermath, there are two investment trades you can make: the fundamental trade and the risk trade," said Tobias Levkovich, stock strategist at Salomon Smith Barney.

"Because we've suffered from an elevated risk premium, as success on the battlefield occurs, that risk comes down, riskier assets do better."

But that dynamic also works on the downside, the strategist warned.

Looks to exceed 9/11 traffic

Among the reasons investors have remained enthusiastic on the sector has been the recent rise in Internet traffic, particularly at news sites.

The war in Iraq was an event that most news sites were well prepared for. In fact, it appeared most news sites saw an opportunity to shine as the newest form of media to deliver the best coverage on the war.

On Thursday, the latest data on the Internet audience from ComScore Media Metrix showed that traffic soared 70 percent above the average traffic over the last four weeks.

As hostilities against Iraq commenced, MSNBC.com, which provides news for Microsoft's
MSFT, -1.81%
MSN.com, served 6 million video streams last Wednesday, comparable to the peak streams it served on Sept.11, 2001.

Early indications point to higher video streams served on Thursday and Friday, according to Peter Dorogoff, a spokesman for MSNBC.com. This compares to breaking news days that typically get 200,000 daily streams, said Dorogoff.

Akamai Technologies
AKAM, -2.07%
which also delivers Web content, said it's unable to determine how many gigabits per second that sites are pushing.

Typically in the last six months, few sites push over a gigabit per second. During 9/11, some sites were pushing 10 gigabits per second.

But Akamai spokesman Jeff Young says since Wednesday, the company has been increasingly serving more viewers at the same time.

On Wednesday, Akamai peaked at 30,000 concurrent streams, rising to 80,000 on Thursday and 110,000 on Friday. This means that at one point, Akamai delivered streams to 110,000 viewers simultaneously.

The peak times occurred between 2 p.m. and 4 p.m. Eastern since Wednesday, according to Young.

Indeed, according to measurement company Nielsen/NetRatings, the online news sites generated about 50 percent more traffic from the at-work audience compared to the home audience. The top sites on Thursday were CNN.com, with 5 million unique visitors, followed by MSNBC.com, 3.9 million, and Yahoo News, 2.9 million.

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